Monthly Highlights: February 2012

•  West African equities rose on back of strength from Ghana & Francophone
•  East African equities rose on back of continued strength in Kenya
•  Southern Africa posted mixed results on the month
 

African equities continue their resurgence

Generally upbeat economic data appears to have sustained the price of African equity markets over the short-term. Despite the medium-term risk posed by year-end US elections, US economic data and a more optimistic Eurozone landscape seem to have coaxed the financial markets into an overall bullish stance. Nevertheless, we will maintain our focus on inelastic opportunities whose demand profiles are less reliant on the expan-sion of global GDP should the markets encounter yet another round of macro-related apprehension. We are also keeping our distance from large state-controlled enterprises as local governments push through tax hikes and regulatory caps designed to offset slower eco-nomic growth at home.

West African equities rose on back of strength from Ghana & Francophone

West African equity markets rose on back of strength in Ghana and the Francophone region as Nigeria retreated despite renewed inter-est in the nation’s banking sector. Nigerian inflation rose to 12.6% y/y amid a 4.5% m/m spike in the core as the economy attempts to digest last month’s increase in fuel prices to NGN 97 per litre. On the earnings front, we digested conflicting data from across the con-sumer sector with Flour Mills (T/O: +17.5% y/y; PAT: -13.0% y/y) and Guinness Nigeria (T/O: +6.1% y/y; PAT: -2.5% y/y) failing to impress. Whilst Nestle Nigeria reported strong FY11 numbers (T/O: +18.4% y/y; PAT: +33.4% y/y), the company’s well deserved premium has rich-ened on both a fundamental and relative basis. Shifting to Ghana, the Central Bank unexpectedly hiked its benchmark lending rate by 100bp to 13.5% as inflation rose for the first time in four months on back of rising energy prices and a weaker cedi. Guinness Ghana return to profitability following last year’s USD 60 million rights is-sue which allowed the company to slash its financing costs by half. We also saw strong FY11 results from Unilever Ghana (T/O: +32.9% y/y; PAT: +75.0% y/y) on back of improved branding, increased mar-ket penetration and the sale of its Benso palm oil unit.

East African equities rose on back of continued strength in Kenya

East African equities were led by strength in Kenya as EABL (T/O: 35.7% y/y; PAT: +37.6% y/y) released strong 1H12 earnings with management achieving broad-based volume expansion despite the highly challenging operating environment. Margins deteriorated on back of rising input costs although the ongoing integration of re-cently acquired Serengeti Breweries continues to go smoothly. Bar-clays Kenya released mixed FY11 results as net income rose +3.2% y/y excluding extraordinary items. Although net interest income re-mained positive, cost-to-income declined and NPLs continue to de-crease, we remain on the sidelines as the bank’s shares remain ex-pensive relative to its peer group. Shifting to Mauritius, MCB an-nounced disappointing 1H12 results as an unexpected +74% q/q rise in NPLs caused net income to rise by only +2.3% y/y. By contrast, SBM posted surprisingly strong 2Q11 results as net income rose +28.6% y/y on back of strong non-interest income from its emerging international operations.

Southern Africa posted mixed results on the month

Southern African equity markets posted mixed results in February as strength in Botswana and Zimbabwe was largely offset by subpar performance in Malawi and Zambia. In Zimbabwe, Delta confirmed the retirement of CEO Joe Mutizwa as Pearson Gowero was named CEO of the nation’s largest company by market cap. Shifting to Inn-scor, we are cautiously optimistic ahead of next month’s 1H12 re-sults as growth in consumer spending and increased capacity utiliza-tion should result in greater turnover and improved margins. In Zambia, inflation declined to its lowest level in nearly a decade as Africa’s largest copper producer benefited from lower food prices. It should be noted that Zambia has begun soft circling investors as it contemplates issuance of a 10-year USD 700 million Eurobond to finance infrastructure and other construction projects. In Botswana, the Central Bank kept rates on hold at 9.5% despite persistent infla-tionary pressures and healthy growth in diamond exports.